Greek depositors have reasons to worry despite the fact that Greece does have an explicit deposit insurance scheme in place. For euro zone countries, the responsibility of guaranteeing bank deposits is in the hands of national governments. In other words, the credibility of the insurance deposit scheme depends on each governmentaEUR(TM)s financial situation. In 2011, the combined assets of the four largest Greek banks equaled 125 percent of the country's GDP. Considering Greece's dire fiscal situation, the deposit insurance scheme can now be considered useless.
There is also the fear that if Greece finally quits the euro zone, depositors will face a forced currency conversion. It is thus no surprise that Greek citizens and other EU depositors have chosen to move their deposits to banks in other euro zone countriesaEUR"and thus exacerbate the banking crisis. A lack of confidence is sufficient to make a prophecy self-fulfilling.
ECB won't rescue insolvent Greek banks. So we are probably not too far away from Greece's departure from the euro zone. If there is silver lining, it is the fact that the market is now prepared for Armageddon after three years of euro zone crisis. The next big question, however, is whether the euro zone firewall will work as promised and halt the contagion from Greece. The suspense continues.